Standing Committee B

[Mr. James Cran in the Chair]

Pensions Bill

Clause 181 - Actuarial valuations and reports

Question proposed [this day], That the clause, as amended, stand part of the Bill. 
 Question again proposed.

Nigel Waterson: Welcome again to our deliberations, Mr. Cran.
 I was in the process of referring to comments made by the National Association of Pension Funds. We have already dealt with the amendments to the clause, and I was referring to the overlap of the old minimum funding requirement valuations with the transitional provisions and the first actuarial valuation under the new system. The association wanted to put the word ''material'' before the word ''developments'' in clause 181(2)(c), and I would have tabled an amendment to that effect if I had received the briefing in time. That point is self-evident, so I will not bother explaining it. 
 The NAPF is a little concerned about the phrase 
''within seven days of . . . receiving it'',
 in subsection (7). It says that the phrase ''as soon as reasonably practicable'' would make more sense, and that it is important that trustees or managers have an opportunity to see and consider the valuation report at least as soon as the employer does, which is a fair point. That very phrase appears elsewhere in the Bill, so it is not unfamiliar to the draftsmen.

Malcolm Wicks: Good afternoon, Mr. Cran.
 I shall deal with some of the hon. Gentleman's specific questions. He asked whether trustees should make an actuarial valuation or report available to the employers as soon as is reasonably practical, instead of within seven days of receiving it. However, clause 181 carries forward a similar requirement to the legislation that currently applies to the minimum funding requirement. It is important to ensure that the employer is kept fully informed at key stages of the valuation process. It is appropriate to ensure that that seven-day period applies equally to the new scheme funding provisions, so we would like to stick to it. 
 On the question whether schemes must do a scheme-specific valuation straight away, we will ensure that appropriate arrangements are in place to allow schemes to make a smooth transition to the new requirement. Those arrangements will be set out in regulations, and we will consult on the detailed proposals before the regulations are introduced. We intend that there will be a transitional period to allow 
 schemes to maintain the three-year valuation cycles if they wish to do so. 
 The hon. Gentleman also asked whether the requirement for actuarial reports should be restricted to covering material developments since the last valuation. We do not believe that such a restriction would be necessary or appropriate. The European pensions directive requires actuarial reports to cover developments in the schemes' technical provisions and changes in the risks covered. The detailed framework for the calculation of a scheme's assets and technical provisions will be set out in regulation. We will consult interested parties as we finalise those detailed requirements. 
 Question put and agreed to. 
 Clause 181, as amended, ordered to stand part of the Bill.

Clause 182 - Certification of technical provisions

Amendment proposed: No. 320, in 
clause 182, page 115, line 21, leave out from 'with' to end of line 22 and insert 'regulations under section 179'.—[Malcolm Wicks.]

James Cran: With this it will be convenient to discuss Government amendments Nos. 321 to 323.

Nigel Waterson: It may be because I was considering the amendments late at night, but I cannot get my head around what they are designed to achieve. Will the Minister talk us through them?

Malcolm Wicks: As it happens, I prepared a note over lunch in anticipation of that question. Government amendments Nos. 320 to 323 amend the requirements in clause 182 relating to the actuary's certification of the scheme's technical provisions. Government amendment No. 320 to subsection (2)(a) clarifies the fact that the certificate must state that the calculation of the technical provisions has been made in accordance with regulations made under clause 179. Clause 179 provides for regulations to specify ''alternative . . . methods and assumptions'' and to specify that
''it is for the trustees or managers to determine which methods and assumptions are to be used''
 in accordance with prescribed principles. 
 Government amendments Nos. 321 and 322, which apply to subsection (2), remove the requirement that the calculation must be consistent with any prescribed guidance. We agree with the professional body for scheme actuaries, the Faculty and Institute of Actuaries, that there is no need for additional prescribed guidance, as the requirement will be set out in the regulations. Government amendment No. 323 removes the power in subsection (3) to prescribe further requirements, as it is considered that the requirements of subsection (2) are sufficient. 
 Amendment agreed to. 
 Amendments made: No. 321, in 
clause 182, page 115, line 23, leave out from beginning to ', and'.
 No. 322, in 
clause 182, page 115, leave out lines 25 to 27.
 No. 323, in 
clause 182, page 115, line 28, leave out subsection (3).
 No. 324, in 
clause 182, page 115, line 31, leave out 
 'as soon as is reasonably practicable' 
 and insert 
 'within a reasonable period after the end of the period within which the valuation must be received by the trustees or managers'.——[Malcolm Wicks.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I am grateful to the Minister for that explanation. I am sure that it is because of my slowness on the uptake that I required an explanation of the amendments. It seems that they simply shrink the amount of prescription allowed under the clause. As I said, it is difficult to get one's head around what is likely to emerge, simply because there is to be so much prescription in subsequent regulations. I hope that we will see those regulations one day.
 I wonder whether the Minister saw a report a few days ago saying that Standard and Poor's, the ratings agency, is launching a service to identify the likelihood of a company pension scheme remaining in deficit when a company goes bust. I will tell him a little bit more about that, in case he has not heard the reports. To assist any official who might be scribbling a note on this issue, I would like to know to what extent such certification can be sub-contracted. Many of the certifications, recovery reports, actuarial reports, funding principles and other things required will create a significant burden, particularly for smaller schemes. Clearly, they do not pose a problem for those running the Marks and Spencer or British Airways pension scheme. However, there is at least the possibility of a private sector solution. 
 According to the report, Standard and Poor's, which is reputable and long-standing in its field, as the Minister will know, has spent two years developing a service that uses complex models to measure the likelihood of large companies defaulting on debt obligations, and it applies that to their current situation. Apparently, its reports will have three strands, which to some extent reflect what is in the Bill. The first strand assesses the financial strength of the company, and the solvency of its pension scheme and the adequacy of the contributions being made to it. The second strand looks at whether the investments made by the scheme are likely to meet its requirements. The third strand assesses institutional asset managers. 
 The bad news is that S&P will award companies up to five stars, depending on the strength of their pension schemes, although given the relative lack of success of star schemes—or at least those run by the Government—we might perhaps persuade it to make the stars rosettes or spanners or something else. S&P says that its rating system will enable trustees to communicate the company's findings easily to employees. There is some merit in that, and I am sure that the Minister would agree that the public sector does not have a monopoly on wisdom in these matters. Although I am not suggesting that he should 
 give me a definitive answer now, perhaps I may ask him to consider whether certification and compliance with some of the technical provisions could be met with arrangements such as those in the S&P scheme. Malcolm Wicks: I saw S&P's proposals in outline, although I have not studied them in detail. In response to one of the hon. Gentleman's points, our current approach is a private sector solution. We are not asking the Government Actuary's Department to do this work. I am happy to consider the implications of what he proposes. However, the scheme is responsible for itself, subject to the provisions that we are discussing the powers of the regulator, and so on. I would not want anything to take away responsibility from the trustees for the governance of their own scheme or from the scheme actuary, for example, but I shall look further into his question. 
 Question put and agreed to. 
 Clause 182, as amended, ordered to stand part of the Bill.

Clause 183 - Recovery plan

Amendments made: No. 325, in 
clause 183, page 116, line 8, after 'must', insert 
 ', except in prescribed circumstances,'.
 No. 326, in 
clause 183, page 116, line 9, leave out 
 'as soon as is reasonably practicable' 
 and insert 
 'within a reasonable period after it is prepared or, as the case may be, revised'.—[Malcolm Wicks.]
 Clause 183, as amended, ordered to stand part of the Bill.

Clause 184 - Schedule of contributions

Amendments made: No. 327, in 
clause 184, page 116, line 25, after 'reviewed', insert 
 ', and if necessary revised,'.
 No. 328, in 
clause 184, page 116, line 29, leave out subsection (5) and insert— 
 '(5) The schedule of contributions must be certified by the actuary and— 
 (a) the duty to prepare or revise the schedule is not fulfilled, and 
 (b) the schedule shall not come into force, 
 until it has been so certified.'.
 No. 329, in 
clause 184, page 116, line 36, leave out 'prescribed date' and insert 
 'effective date of the last actuarial valuation'.
 No. 330, in 
clause 184, page 116, line 40, leave out 'prescribed date' and insert 
 'effective date of the last actuarial valuation'.
 No. 331, in 
clause 184, page 116, line 43, leave out 'prescribed date' and insert 
 'effective date of the last actuarial valuation'.
 No. 332, in 
clause 184, page 116, line 45, leave out 
 'as soon as reasonably practicable' 
 and insert 
 'within a reasonable period after it is prepared or, as the case may be, revised'.
 No. 333, in 
clause 184, page 117, line 6, leave out 
 'as soon as reasonably practicable' 
 and insert 
 'within a reasonable period after the end of the period within which the schedule is required to be prepared or, as the case may be, revised'.
 No. 334, in 
clause 184, page 117, line 10, leave out 'and (3)' and insert ', (3) and (5)'.—[Mr. Pond.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: The NAPF is worried that clause 184(6)(b) will lead to actuaries being more cautious and risk averse, which is difficult to conceive of. None the less, they can apparently be even more cautious and risk averse than they already are in their view of what can be expected, with the consequence that trustees will increasingly decide to pursue risk-minimising, rather than return-seeking, investment strategies. In other words, they will pursue a course rather like defensive medicine—a defensive investment strategy. The NAPF thinks that that could cause the cost of funding schemes to increase, with a significant impact on the cost to scheme sponsors. It expressed the hope that the regulations, when they appear, will do their best to discourage such an outcome. I should be grateful if the Under-Secretary could reassure me and the NAPF about that.

Chris Pond: Under the new provisions, the trustees will make the key funding decisions about the scheme. They will have to seek the employer's agreement and obtain actuarial advice. It will be for the trustees to decide the degree of risk appropriate for the circumstances of the scheme when they decide what method and assumptions within the prescribed framework will be used for the calculation of the technical provisions. The actuaries will be required to certify that any schedule of contributions is consistent with the statement of funding principles, which sets out the methods and assumptions to be used. The actuaries will be required to state whether in their opinion, and on the basis of the actuarial assumption chosen by the trustees, the scheme's funding position will be met or restored during the period covered by the schedule of contribution.
 It is difficult in such circumstances to know why the clause should make actuaries, who, as the hon. Member for Eastbourne (Mr. Waterson) suggests, are usually a fairly loose-willed group of people who can be a bit zany, more risk averse than they would otherwise be. The clause ensures that the trustees have to make the decisions based on actuarial advice. On that basis, actuaries can put forward the advice that they think is appropriate, which is neither risk averse 
 nor riskier than would otherwise be the case. For that reason, we cannot understand why clause 184 would have the effect that has been described. 
 Question put and agreed to. 
 Clause 184, as amended, ordered to stand part of the Bill.

Clause 185 - Failure to make payments

Amendment made: No. 335, in 
clause 185, page 117, line 20, leave out 
 'in writing as soon as reasonably practicable' 
 and insert 
 'and to the members within a reasonable period'.—[Mr. Pond.]

Chris Pond: I beg to move amendment No. 336, in
clause 185, page 117, line 21, leave out subsection (3).

James Cran: With this it will be convenient to discuss Government amendment No. 337.

Chris Pond: These are tidying up and drafting amendments, so I doubt whether the Committee will dwell on them for too long. Government amendment No. 336 removes the requirement on actuaries and auditors to notify the regulator when they become aware of a failure to pay contributions in accordance with the schedule of contributions. Government amendment No. 337 removes the penalties for non-compliance with that reporting obligation. The two amendments remove duplicate provisions, as the reporting duties for actuaries and auditors are contained in clause 45, which is entitled ''Duty to report breaches of the law''. On that basis, I hope that the Committee will not have difficulty in accepting the amendment.
 Amendment agreed to. 
 Amendment made: No. 337, in 
clause 185, page 117, line 33, leave out paragraph (b).—[Mr. Pond.]
 Clause 185, as amended, ordered to stand part of the Bill.

Clause 186 - Matters requiring agreement of the employer

Chris Pond: I beg to move amendment No. 338, in
clause 186, page 118, line 12, after first 'the' insert 'active'.

James Cran: With this it will be convenient to discuss Government amendments Nos. 339 and 341.

Chris Pond: The amendments deal with the modification requirements under subsection (3). Government amendment No. 338 amends subsection (3)(b) so that only the active members of the scheme must be notified when the trustees or managers have exercised their power to modify the scheme with regard to the future accrual of benefits. Last Thursday, we discussed the Bill's approach to active, pensioner and deferred members. We put undue emphasis on active members, so I want to underline that, under the provisions, deferred and pension members will not be affected by a change to the future accrual of benefits.
 Government amendment No. 339 requires members to be notified within one month of the modification 
 taking effect, not within one month of the decision being made. The change makes it clear that modification is not dependent on the notification having taken place and gives the trustees a longer period for notification beginning on a clearly defined date. 
 Government amendment No. 341 is a technical amendment to subsection (5), which extends the regulator's powers to impose sanctions in circumstances in which the trustees or managers fail to take all reasonable steps to comply with the notification requirements. 
 I trust that the Committee will feel able to accept the amendments. 
 Amendment agreed to. 
 Amendments made: No. 339, in 
clause 186, page 118, line 12, leave out 'decision being taken' and insert 'modification taking effect'.
 No. 340, in 
clause 186, page 118, line 15, leave out 
 'as soon as reasonably practicable' 
 and insert 'within a reasonable period'.
 No. 341, in 
clause 186, page 118, line 17, after 'subsection (1)', insert ', (3)'.—[Mr. Pond.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I want to make a couple of points. I apologise that they did not materialise in the form of amendments, but that was because of the breathtaking, breakneck speed at which we considered earlier parts of the Bill. Again, they involve issues raised by the NAPF that merit the Committee's consideration.
 On clause 186(1), the NAPF welcomes the provision requiring trustees to gain the employer's agreement on key funding issues. That makes sense. On clause 186(2), it would like to replace the expression 
''the future accrual of benefits''
 with the phrase ''anything that does not affect accrued rights''. It takes the view that that would be clearer and more helpful to schemes. I do not know whether officials could examine that proposal, and I do not expect the Under-Secretary to have an instant response. 
 Beyond that, we have no comments to make except on subsection (4), but I think that they will arise more naturally in respect of the powers of the regulator that are set out in clause 188(2). I will therefore leave those further points for the moment.

Chris Pond: Funnily enough, I did have an instant reaction. It was to disagree with the hon. Gentleman's proposal that we should insert the wording ''accrued rights'', because it is open to interpretation. The term ''future accrual of benefits'' means benefits that accrue after the date of the modification. The wording was carefully chosen. I hope that the Committee will accept
 that it was chosen for a purpose and accept the clause as it stands.
 Question put and agreed to. 
 Clause 186, as amended, ordered to stand part of the Bill.

Clause 187 - Matters on which advice of actuary

Chris Pond: I beg to move amendment No. 342, in
clause 187, page 118, line 27, after 'preparing', insert 'or revising'.

James Cran: With this it will be convenient to discuss Government amendments Nos. 343 and 344.

Chris Pond: Clause 187(1) sets out matters on which trustees or managers must obtain the actuary's advice. Government amendments Nos. 342 and 343 insert into that list the requirement to obtain the advice before ''revising'' as well preparing a recovery plan and before
''modifying the scheme as regards the future accrual of benefits''.
 The intention is that trustees and managers should seek advice from the scheme actuary before making any of the key decisions on the funding of their schemes. 
 Government amendment No. 344 inserts into the clause a subsection (4) that provides for the regulator to penalise a trustee or manager who fails to ''take all reasonable steps'' to comply with the requirements to obtain advice from the scheme actuary. That provision is consistent with the approach taken elsewhere in this part of the Bill where duties are placed on trustees and managers. I hope that the Committee will accept the amendments. 
 Amendment agreed to. 
 Amendments made: No. 343, in 
clause 187, page 118, line 28, at end insert— 
 '(e) modifying the scheme as regards the future accrual of benefits under section 186(2).'.
 No. 344, in 
clause 187, page 118, line 35, at end insert— 
 '(4) Where subsection (1) is not complied with section 10 of the Pensions Act 1995 (civil penalties) applies to a trustee or manager who has failed to take all reasonable steps to secure compliance.'.—[Mr. Pond.]
 Clause 187, as amended, ordered to stand part of the Bill.

Clause 188 - Powers of the Regulator

Amendments made: No. 345, in 
clause 188, page 119, line 13, leave out paragraph (e) and insert— 
 '(e) that the trustees or managers— 
 (i) have failed to prepare a schedule of contributions when required to do so under section 184, 
 (ii) have prepared a schedule of contributions that does not comply with the requirements of that section or any prescribed requirements, or 
 (iii) have failed to review and revise a schedule of contributions as required by subsection (3) of that section.'.
 No. 346, in 
clause 188, page 119, line 35, at end insert 
 'specifying— 
 (i) the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and 
 (ii) the dates on or before which such contributions are to be paid.'.—[Malcolm Wicks.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I have three points to make about clause 188. A moment ago, I flagged up the fact that I wanted to return to the powers that were available when an agreement could not be reached between trustees or managers and the sponsoring employer, as envisaged under clause 186(4). Those powers are largely set out in clause 188(2); the regulator has some wide-ranging powers.
 The National Association of Pension Funds says that it would 
''like to see a statutory requirement on the Regulator to consult on and publish its policy framework for determining matters which could be subject to orders as set out in Clause 188 (2) (a) to (c).''
 That may already be in the pipeline. There is a department within a Department producing draft regulations, codes of practice, guidance and God knows what else. If such a requirement is not already on its shopping list, perhaps it could be added to it. 
 The Library briefing makes an interesting point. There seems to have been a change of Government policy since the June 2003 White Paper was published; we have to remember the dates, because there has been a blizzard of White and Green Papers on pensions policy. That document proposed that trustees should be given a sort of nuclear option as a last resort—the power to freeze or wind up the scheme. Pensions Week, which is quoted in the briefing, thought that that would give power and strength to the trustees in their dealings with the sponsoring employers. Given that they now have to meet the full buy-out cost on wind-up, perhaps they will be more reluctant to allow that to happen. The Government seem to have gone down the slightly different path of giving the regulator more specific powers to impose a schedule of contributions or to give directions on how and over what period any failure to meet the statutory funding objective should be rectified. Will the Minister give some background on that shift on the part of the Government? 
 My final point concerns issues that I assume we will deal with one day—those related to simplification. We are quite properly dealing with the powers of the regulator to modify a scheme in the circumstances set out in clause 188. However, so far, the Bill is missing what I shall call by way of shorthand the section 67 points—they relate to section 67 of the Pensions Act 1995—which the Minister has, in fairness, said that he will come to. Those would make it easier for the sponsoring employer and the trustees to amend the terms of an existing scheme, rather than just shut it down. Under clause 188, the regulator would be given significant powers in certain circumstances, but we should not forget the enormous attraction of simplification, which could be available to most 
 schemes. Hopefully, one fine day, that could happen as part of this legislation.

Malcolm Wicks: Clause 188 gives the pensions regulator additional powers to intervene and take corrective action if it becomes aware that any part of a scheme funding process is breaking down. It is an important clause. Subsection (1) sets out the circumstances in which the regulator may intervene, such as when an agreement cannot be reached with the sponsoring employer or when some key part of the process, such as an actuarial valuation, has not been carried out.
 In such circumstances, the regulator would have the wide range of powers in subsection (2), which it could use in a proportionate and targeted way to help resolve matters. The powers under subsection (2) would modify the future accrual of benefits for active members, direct how a scheme should calculate its technical provisions, determine the time frame over which funding deficits must be made good and/or impose a schedule of contributions. 
 Such powers are essential to assist the regulator in the exercise of its responsibilities to protect members' interests when the security of their benefits appears to be at risk, and to help to protect the pension protection fund from the moral hazard of trustees pursuing funding strategies that do not comply with the legislation in the expectation that the fund will bail their scheme out if things go wrong. The powers will be additional to those set out in part 1, including powers to issue improvement notices, to prohibit or appoint trustees, to issue a freezing order and, ultimately, to order the winding up of a scheme in exceptional cases. 
 In answer to the points raised by the hon. Member for Eastbourne on consultation, yes, we propose that there should be consultation. It is important that the regulator's powers in clause 188(2) should not be construed as a get-out clause for trustees and employers who wish to absolve themselves of the responsibilities imposed on them by part 3. The regulator will therefore publish guidance on how it proposes to exercise those powers under normal circumstances. I expect such guidance to be available from day one. The regulator's code of practice will be drafted by operational experts in consultation with relevant stakeholders involved in schemes. Before a code of practice becomes active, it will be subject to a rigorous approval process that will require agreement by the Secretary of State and scrutiny by Parliament. Either may reject the code and insist on revision. 
 The hon. Gentleman asked why the power of trustees to wind up a scheme—the so-called nuclear option—has been dropped. As he intimated, such a power was included in the proposals announced in the Green Paper in December 2002. It was intended as a power of last resort, only for use if the trustees could not reach agreement with the employer on funding the scheme. However, we received many representations that trustees should not have the power to wind up a scheme and force an employer who is willing to continue to sponsor it to meet the full buy-out costs. 
 Since the Green Paper was published, we have continued to develop detailed proposals for legislation in the light of continuing discussions with the pensions industry and other interested parties. We have taken account of those concerns in drawing up the detailed proposals in the Bill. 
 Question put and agreed to. 
 Clause 188, as amended, ordered to stand part of the Bill.

Clause 189 - Power to modify provisions of this Part

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: This is a small point, but an important one. Yet again we are considering a very wide get-out clause. Clause 189 will allow, by regulation, the modification of provisions in this part of the Bill as they apply in prescribed circumstances. Indeed, one could almost have eliminated all the other clauses in this part and left just this clause, because, as has been pointed out not just by me but by representatives of the industry and other interested parties, the reality is that all the meat in this part has been left to be prescribed. Piling one thing on another, there is now a power to change the prescription later.
 Since we have no idea at present what the detailed regulations will provide, it is almost impossible to conceive what the Government have in mind for changing later. Such sloppy legislation makes it extremely difficult to gauge just what we are being asked to sign up to in this part. As such, the Minister may have noticed the paucity of Opposition amendments and suggestions from the industry for amendments. We are being offered a pig in a poke, if I may use that expression. If I thought that we could win the vote, I would recommend that my hon. Friends vote against clause 189.

Malcolm Wicks: I am sure that one day the hon. Gentleman will win a vote, but not just yet. This issue, which he has returned to on several occasions and which, to be fair, Opposition Members tend to return to on such occasions, raises the crucial question about the balance that must be struck between provisions in a Bill and the need for secondary legislation. However, I shall not deal with that well-known British constitutional point. I hope that the hon. Gentleman will concede that in technically detailed matters such as this, where circumstances change regularly—if not all the time—it would be wrong of us to constrain and restrain ourselves in the Bill if that meant that its overall objectives could not be pursued.
 The framework and broad principles of the scheme-specific funding requirements, which will replace the MFR, are set out in the Bill. The detailed requirements that will operate within that framework will more properly be set out in regulations, for the reasons that I have hinted at. That will enable us to work closely with the pension industry and bodies representing both employers and pension scheme members to ensure that 
 the detailed requirements of the regulations are workable and effective. 
 The public need to know what the broad thrust of the wishes of the Government and Parliament. We can then enter the detailed discussions that the hon. Gentleman has urged us to take seriously on a number of occasions; we do take them seriously. 
 Question put and agreed to. 
 Clause 189 ordered to stand part of the Bill.

Clause 190 - Construction as one with the Pensions Act 1995

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I have only one question for the Minister. What does the clause mean?

Malcolm Wicks: I should have thought that that was fairly obvious. Clause 190 provides for the terminology used in part 3 of the Bill to be interpreted as having the same meaning as it does in part 1 of the Pensions Act 1995. I imagine that the hon. Gentleman voted in favour of that Act. I regard him as a scholar of that legislation.
 The clause is needed to ensure consistency between the provisions in part 1 of the aforesaid Act and part 3 of this Bill. Part 1 of the 1995 Act contains the regulatory framework for occupational pension schemes and the provisions in part 3 of the Bill relate to scheme funding.

Gregory Barker: For the benefit of hon. Members who were not in Parliament in 1995, would the Minister care to refresh our memories about what that Act said?

Malcolm Wicks: That is one of those questions where the answer is known already. Sections 124 and 125 of that Act define the bulk of the terms used in the legislation, such as ''member,'' ''actuary''—it does not refer to a ''cautious actuary''—and ''employer.'' Clause 190 ensures that those terms have the same meaning when used in the scheme funding provisions.

Nigel Waterson: I just want things to be made clear. The question was not wholly fatuous. The jury is still out on the nature of the answer. Does the phrase ''as one'' simply mean that words in the Bill mean the same as they did in the 1995 Act, or does it go further than that? If there is a clash between, for example, powers and responsibilities in the two pieces of legislation, how would that be resolved? If the Minister is saying, ''This clause simply states that the definitions of words and terms of art in that Act are being carried forward'', I would be slightly bemused as that is not what the clause states, but I would be happy to accept that.

Malcolm Wicks: This is simple and straightforward stuff; it just does not sound as though it is. I agree with the hon. Gentleman on that. The intention is to ensure that there is consistent terminology and vocabulary across the two pieces of legislation. For example, in clause 186(3) the term ''members'' has the same meaning as in section 124(1) of the 1995 Act. I
 would never dare to refer to the hon. Gentleman as wholly fatuous.
 Question put and agreed to. 
 Clause 190 ordered to stand part of the Bill.

Clause 81 - The board of the Pension Protection Fund

Question proposed, That the clause stand part of the Bill.

James Cran: I shall now put the Question—
Malcolm Wicks rose—

James Cran: If the Minister wishes to speak, far be it from me to prevent him from doing so. I cannot guess who wants to speak.

Malcolm Wicks: I apologise for being slower than you, Mr. Cran, at least on this occasion.
 It is appropriate that I speak to clause 81, as it is the first clause on the pension protection fund. I shall set out the context for the clause because, up until now, the pension protection fund has been rather like Banquo's ghost; we have referred to it frequently, but have not dealt with the substance of it. 
 Part 2 concerns the new pension protection fund—a crucial measure, as we have heard, to increase member protection and boost confidence in pensions generally. As most of us are acutely aware, if a company goes bust, someone who has paid into that company's final salary scheme throughout their working life could face losing not only their job but their pension if the scheme is left underfunded. I have met people in that situation and I know, as I am sure do other hon. Members, how deeply that can affect them and their families. That is why the fund is such a vital step. It will benefit at least 10 million members by giving them the reassurance that they need to pay into their company scheme, and they will be safe in the knowledge that they will have a secure retirement even if their company goes bankrupt. 
 I am pleased to say that this significant move to improve security and confidence in pensions has rightly received a positive response. I take the opportunity to thank all those involved in the consultation for their contributions and support. It is safe to say that we all stand behind the common goal of improving pension protection, but, as some have rightly pointed out, to achieve that goal we must ensure that the detail of the new fund is right and that it works. To build on the expert advice that we have already received from key players in the pensions world and beyond, the next few weeks of constructive debate in Committee will be just the opportunity to go one step further and take a closer look at the design of the pension protection fund. 
 I shall set out the areas that this part of the Bill will be covering and talk through their main features. The first area is the PPF as an organisation and its governance arrangements. As Committee members are aware, the PPF will be an executive non-departmental public body run at arm's length from Government in order to maintain its independence. At the same time, it will retain a necessary degree of 
 accountability. There has already been some debate about whether the Government should be financially involved with the PPF, and we shall no doubt return to that issue in the days ahead. 
 It is worth pointing out that we have not taken lightly the decision to make the fund responsible for its own financial management. We have learned lessons from the experience of the American Pension Benefit Guaranty Corporation, we have been careful to make our financial assumptions as sound as possible, and we have built in safeguards to ensure that the British PPF can be self-sufficient in the long term. The new organisation will be governed by a board, the members of which will be appointed in an open and transparent way, making the best use of skills, experience and knowledge. Some Members may have noticed that we are already planning ahead by starting the recruitment process for the key positions of chairman and chief executive, as it is sensible for them to be involved at the earliest stage in the development of the fund. 
 The board's main function will be to pay PPF compensation and ensure that there are enough funds to pay that compensation by managing the calculation and application of the levy and setting and overseeing the investment strategy. In terms of the dispute procedure, the PPF will follow good governance guidelines by having a clear and transparent internal procedure for dealing with disputes similar to the current practice for pension schemes. There will also be ultimate access to an independent PPF ombudsman and the High Court if required. 
 In addition to its main functions, the board will take over responsibility from the pensions compensation board for paying compensation in cases of fraud. That changeover is intended to make life simpler all round and improve efficiency, as it makes sense for all types of compensation relating to occupational pension schemes to come from one single source. The new arrangement will mean that the PPF board will have the authority to pay compensation to both defined benefit and defined contribution schemes up to 100 per cent. of the value of the loss due to fraud. In order to cover the cost of fraud, a fraud compensation levy will be charged to both defined benefit and defined contribution schemes, but only when the need arises. I am grateful to you, Mr. Cran, for allowing me to set the context, because that is probably helpful to Members. 
 Clause 81 sets up the board of the pension protection fund. I have outlined in my introduction the reasons for introducing the fund. Suffice it to say that it forms a part of a substantial, balanced package of measures that seek to ease the financial and administrative burden on employers while offering a sustainable system of protection to individuals. Under clause 81 the board of the fund is set up as a corporate body referred to as ''the board''. Although occasionally I might refer to that as the fund, hon. Members will know that in both cases I am talking about the PPF; that is to avoid confusion with the pot of money, which is referred to as the pension protection fund. The PPF board will ensure that the PPF will significantly improve protection for scheme 
 members as individuals in defined benefit pension schemes based in the UK will have a safety net to ensure that they will always receive a meaningful pension, even if their company goes bankrupt.

Nigel Waterson: I think that the Minister is right. It is probably sensible to have an overview of this central part of the Bill before we get into the detail. I should like to touch on a couple of things that he said before I expand on my own points. He reiterated two things that have been made clear by Ministers. First, the fund must stand on its own and will have no support from Government. I shall deal with that in more detail later. The official Opposition have real worries as to whether the Government are being realistic, simply because of the way in which they have chosen to set up this fund, not least because they have got themselves into a situation in which the funds have to work on a reduced, flat-rate levy, at least in the early stages. We shall go into that in more detail in due course.
 Secondly, the Minister said that there will be no retrospectivity in the compensation. Again, we have specific tabled amendments on that, as have other Committee members. Has he received any guidance from No. 10, following the meeting the other day, on how best to approach the issue? It seems as if those above his pay grade—if I can put it like that—are taking an interest. If there is to be a further dollop of amendments on another important issue pertaining to the Bill, it would help to know about that in good time. 
 The Minister also touched on the purpose of the measure, which is to protect the 10 million or so current members of final salary schemes. Again, I must remind him of the view of his own pension tsar, who thinks that that figure will be down to around 1.4 million within 20 years. Since the Bill was published, we have said that the measure will do nothing to encourage new final salary schemes or even to keep the existing ones open if they were due to close. We are passing legislation that will preside over the gentle decline of the final salary scheme. Subject to the amendments on DC schemes that may be tabled—that has been flagged up, but we have seen nothing yet—that is principally what the Bill is about, as the Minister said.

Malcolm Wicks: It might help if the hon. Gentleman told us whether the Conservative party supports the pension protection fund? He has some technical questions on it, but will he explain why Her Majesty's loyal Opposition declined to give the Bill a Second Reading?

Nigel Waterson: We have been around that course, but I am willing to go around it again. The Minister is well aware, because he and I came into the House on the same day in 1992, that if the Opposition do not want to vote against a Bill because it contains some things on Second Reading that are worth while and others that are not, their only option is a reasoned amendment. The rules of the House require that the reasoned amendment must start with the magic words,
 ''this House declines to give a Second Reading''. I know that it sounds bizarre and would seem odd to the average Martian watching our proceedings. The Minister, however, has had his 10 cents' worth out of that particular point.
 To clarify our position, we are in favour of an insurance scheme. I see that the Minister has a piece of paper, to which we shall have to return. As I said, we have severe reservations about the way in which the fund is being established. In a recent letter to my hon. Friend the Member for Havant (Mr. Willetts), the Secretary of State stated: 
''In designing the PPF, we are looking to import those elements of the US model that work well and fit best with our system of provision.''
 He makes other points, to which I shall return, but that is our starting point. 
 Other countries do things differently. Holland and Germany, for example, have rigorous funding requirements. The Government examined a variety of models and chose to follow the American model of 30 years ago—the American Pension Benefit Guaranty Corporation of 1974. I said that I thought it appropriate to go to Washington to hear a bit more about it at first hand. There are lessons for us to learn from the experience of that fund. Some people's reaction verged on incredulity when they discovered what line the Government were going to pursue. When that fund was set up, the Americans did not pay out benefits until they had built up reserves. 
 I quoted Mr. Kandarian, and no doubt I will do so again at length—we will hear much about him in this stage of our deliberations. However, his plea was that we must not start until we have much more rigorous funding requirements and a proper risk-based levy that goes beyond the risk that is currently built into the levy applied in the USA. I am sure that his departure from his job at the PBGC—nominally to spend more time with his family—was not unconnected with his experience of trying to make sense of the organisation that he had taken over. 
 It is useful, as well as coincidental, that we are discussing this on the very day on which the papers report that the four most senior actuaries in the country have written to the Secretary of State expressing what they call ''our serious concerns'' about the PPF. I would have thought—especially with the American model fresh in our minds—that Ministers would have gone to some lengths to ensure a broad element of consensus, not just on the principle of what is to happen, but on how it is to be organised. 
 It strikes me as remarkable that at this late stage, as we discuss this part of the Bill, the president of the Institute of Actuaries, his president-elect, the president of the Faculty of Actuaries, and the vice-president of that body have written a joint letter to the Secretary of State. As I said, they expressed their ''serious concerns'' about the PPF as set out in the Bill. They said: 
''The PPF has an important role to play in helping to rebuild public confidence in retirement saving.''
 None of us can disagree with that sentiment. They go on to say: 
''It is therefore vital that it is set up and operated with clear objectives'',
 and make the point that the way in which the Bill is constructed suggests that the PPF 
''will operate like a pension fund. As such, it would be subject in the future to the same risks''
 of failure 
''as those which have given rise to the need for the PPF in the first place.''
 In other words, there will be a domino effect. They continue: 
''If this is to be the case, then it is essential that the public are clearly informed from the outset that it is not the Government's objective to provide 'guaranteed' benefits from the PPF.''
 However, they go on to note that, at times, Ministers' looseness of language, which I am sure it is unusual, has meant that the PPF has been described as an insurance fund. 
 On Second Reading, the Minister referred to the PPF as ''honouring pension promises.'' The actuaries say: 
''If these are the Government's objectives, the PPF must be set up and operated like an insurance company, subject to full insurance supervision and solvency regulations.''
 They ask for a meeting with the Secretary of State.

Gregory Barker: I have been listening carefully to my hon. Friend. Does he agree that if the PPF is a mirror image of the smaller funds that it is supposed to protect, it will be subject to many of the same negative forces—namely, market forces—which will have a detrimental effect on it? A general decrease in the value of gilts or equities will have a knock-on effect on the holding fund if it is not simply a pot of ring-fenced Government money. There is a danger that the PPF will be affected by the same forces that will drive funds to draw on it in the first place.

James Cran: Order. I note that the hon. Gentleman's intervention was turning into a speech. I did not want to interrupt him, however, because his points were important.

Nigel Waterson: As it happens, my hon. Friend touched on investment policy, which I shall deal with shortly.
 Actuaries are almost by definition retiring people who are not normally in the habit of writing open letters to the Secretary of State. Clearly, there must have been a breakdown in communication somewhere along the line because in the attachment to their joint letter they make a crucial point about members' benefits, which goes to the heart of the Bill and, in particular, the clause. They say: 
''The liabilities that the PPF will take over from a failed scheme are limited. For retired members, no future increases in pension will apply for benefits earned for service before April 1997, while future increases for benefits earned for service since April 1997 will be limited to 2.5 per cent. p.a. For members who are not retired . . . only 90 per cent. of their benefits will be covered. These benefits will be inflation proofed up to retirement, up to a limit of 5 per cent. p.a. . . . In addition, there is an overall maximum pension of £25,000 p.a. which will be covered by the PPF.''
 They state, quite fairly, that limits to the extent of the safety net already exist in the Bill. The actuaries go on to make the point: 
''There is a power in the Bill for the Board of the PPF to stop increasing pensions if the Fund cannot afford the cost of further increases. There is also a power for the Secretary of State''—
 no less— 
''to further reduce the benefits being paid by the PPF.''
 On the point made by my hon. Friend about investment and the responsibilities of the board, which will be established by clause 81, the actuaries state that the board 
''must draw up a SIP and appoint at least two investment management companies. The least risky, or best matching asset class for a pension scheme to invest in, in order to meet future pension payments, is bonds. However, a typical UK pension scheme will invest a large proportion of its assets in equities. Equities are expected to outperform bonds over the long term and, in a typical scheme, the contributions are determined by taking credit in advance for some of this expected out-performance . . . Despite the risks associated with equity investments, pension fund trustees do not hold additional reserves against these risks. In effect, they are relying on the employer to provide this capital. Because the assets held in equities are 'mismatched' to the scheme's liabilities, then over time the ratio of assets to liabilities can be volatile.''
 That approach has two implications for the funding of pension schemes. The first is that 
''The employers contributions will also be volatile.''
 The second, which is extremely important, is that 
''If the scheme and the employer fail simultaneously, members' benefits will not be paid in full.''
 That is precisely the problem that the Bill is trying to resolve, albeit without retrospection. 
 The actuaries continue: 
''If the PPF is run according to the model described above, there would be a serious risk that members' benefits would need to be cut back.''
 As I explained, the Bill includes powers for the board and the Secretary of State to reduce benefits. The actuaries again state: 
''The Board's ability to increase the size of the levy in adverse times is restricted by the powers in the Bill''.
 If that were not bad enough, they note: 
''The Government has stated that taxpayers' money will not be used to bail out the PPF.''
 That is the basic problem if the PPF is regarded as a pension fund. 
 If it is an insurance fund, subject to strict solvency regulations in the normal way, companies that write that sort of business 
''normally adopt a strictly matched investment policy, investing in bonds. To the extent that they adopted a mismatched investment policy, they would be required to hold additional capital in order to meet the solvency requirements.''
 The conclusion of the actuaries is as follows: 
''If the PPF is run according to this model''—
 that is, the insurance fund model— 
''there will be substantial security for members' benefits from the PPF. However there would be implications for the levy. It would need to be calculated having regard to the deficit in each scheme measured on an 'annuity buy-out' basis.''
 As we know, that would make a big difference. 
 The actuaries continue: 
''It may be tempting for the Government to run the PPF like a pension fund, particularly as this would enable it to keep down the size of the initial levy. However, there would be severe risks to 
members' benefits from adopting this course of action. It is possible for the PPF to have a stable levy and secure benefits for members, provided that it invests in bonds . . . The PPF cannot simultaneously invest in equities, have a stable levy and provide secure benefits, since these three objectives are mutually incompatible.
The Government should therefore either:
Be entirely open and honest with the public about the uncertain future for benefits covered by the PPF, in particular, making it clear that benefits . . . are not 'guaranteed'; or,
Operate the PPF like an insurance fund, applying insurance company solvency regulations.''
 As we are following the American model, it is worth pointing out that there is a read-across with the Pension Benefit Guaranty Corporation. As I said this morning, it has announced plans to change its investment strategy radically. It is cutting its equity holdings and buying more Government bonds. As I have said, actuaries believe that those are the best match for pension liabilities. As Steve Kandarian said in January, the safety nets liabilities were bond-like, so the corporation would buy more fixed-income securities as a good asset to match those liabilities. 
 Thus, right at the start of our detailed consideration of this centre-piece of the Bill, we have an enormous conundrum set out with admirable clarity by the four most senior actuaries in the country. 
 Only the other day, a written statement from the Minister sought parliamentary approval for additional resources of £450,000 in a supplementary estimate in relation to the pension protection fund. Those of us who occasionally surface from the Committee will be aware that the Department for Work and Pensions is advertising the post of chairman for the PPF at £80,000 for a two-day week and the post of chief executive for what is described as an attractive six-figure package. Both posts are described as fixed-term appointments of two to three years' duration. All credit to the Government for getting on with it. They are, perhaps, a bit quick off the mark but I believe that the convention is that once a Second Reading has occurred in this House, as opposed to the other House, it is possible to start advertising such posts. 
 Before we take anybody on at that kind of rate, I ask the Government to reflect on and respond to those serious matters raised today with the Secretary of State by the four leading actuaries in the country.

Kevin Brennan: At the start of this part of the Bill, it is important to welcome the establishment of a pension protection fund, including its board, which is what the clause does. That is the heart of what the Bill is about. I have learned a lot about pensions over the last couple of years. I have still got a long way to go in my education on the subject, as I suspect those who have been doing it for 20 or 30 years have. It is a vast and complex subject, but one part of it that was little understood by the public—and certainly little understood by myself and many colleagues in the House before recent events—was the extent to which final salary occupational pensions were not protected by some sort of fund or board.
 I walked into a meeting of steelworkers in Cardiff in the Railway club in Splott a couple of years ago and met workers who had faced a double whammy. They had lost their jobs and were likely to lose their pensions. I thought that such an experience might have been possible in the Dickensian era in this country. At that time, one might have been able to walk into a meeting with workers and discover that they had all been sacked and that their promised pensions had been taken from them on the same day. But I discovered that it was possible for it to happen in the 21st century, despite the fact that only a few years previously there had been legislation on the matter. 
 The establishment of some sort of pension protection fund is absolutely crucial. It is crucial because, as the Secretary of State said on Second Reading, the pension promise is worthless otherwise. It would be an utter betrayal of those workers if they were permitted to work loyally for a company for 20, 30 or 40 years in some cases, believing reasonably and rationally that they would receive a pension related to their final salary on retirement, only to find out that that was not the case. The establishment of the fund is to be welcomed, and the clause should be welcomed. 
 The hon. Member for Eastbourne raised several issues that I am sure we shall debate in some detail as we consider the clauses related to the establishment of the protection fund and its board. Ultimately, the key point is security. Unless the pension protection fund delivers a promise of guaranteed benefits upon insolvency for workers who have paid into final salary pension schemes, the fund and the board will be worthless. Unless it provides security it is not worth having, because the schemes are not worth having unless they provide security. By their definition, they are defined benefit schemes, not defined contribution schemes. If employers wish to offer defined contribution schemes, they are free to do so. 
 Often, some employers have offered to fund benefit schemes because it is quite advantageous for the management to do so, and they often load up their salaries in the latter years of their careers to ensure that their final salary pension is quite generous. They often go early, and often jump ship when the company is on its way out. Final salary pension schemes are worth having; we should promote them and the Government should encourage companies to have them. However, if we are going to have them, they must have meaning. They will have meaning, and offer a pension promise to people, only if the protection offered by the fund is real and guaranteed in some way. That is why it is absolutely essential that security is the first priority of the board of the pension protection fund in securing the benefits that will be available. Adopting a more conservative investment strategy—rather than the Conservative strategy, which was rather reckless in the '80s and '90s—would be the appropriate way forward. 
 The problem otherwise is that we shall return to the issue again in a few years' time. If we do just one thing in the Bill, and particularly in this clause and those that follow, it should be to ensure that we do not have to return to the issue in the next few years as we are doing now, just nine years after the previous Bill on 
 the subject was passed. If we do have to return to it, and the pension protection fund does not provide the security that I spoke about, we will have failed. That failure would have a severe effect on working people's confidence in pensions. Many workers feel as though they have somehow failed, although they have not, because they feel that they were foolish enough to believe their employer, successive Governments and other advisers who told them that, by participating in a final salary occupational scheme, they had the best kind of pension possible. That is frequently what they were told.

Gregory Barker: In light of the hon. Gentleman's expertise as a former trustee of a pension fund, and in the absence of a cast-iron Government guarantee for the fund, what weighting of gilts, bonds and equities, broadly speaking, does he think would give the fund the guarantee that he seeks?

Kevin Brennan: I profess non-expertise in the subject. As I said at the outset, I am a beginner, and I suspect that I will remain so even if I study it for many years to come. However, I am sufficiently intelligent to know that it would be daft of me to speculate on the proportion of gilts, equities and other investments in the pension protection fund. Such decisions should be made in light of proper advice from the board when it is set up. It would be wholly inappropriate for me to offer advice on that.
 I suspect that the Conservative Front-Bench spokesman, the hon. Member for Eastbourne, will not offer any advice on the subject, either. We are still waiting for him to tell us his party's position on many clauses. We have heard what various interest groups think about them, we have heard various observations from outside, and we have heard what the Library has to say about the Bill several times during this debate; but we have not often heard the position of Her Majesty's official Opposition, and I do not anticipate that we shall hear their opinion on the proportion of equities, gilts and other investments in the pension protection fund, either. However, perhaps the hon. Member for Bexhill and Battle (Gregory Barker) is about to tell us that.

Gregory Barker: I am not, but I appreciate the hon. Gentleman's reticence in suggesting what the weighting would be. However, does he recognise the conundrum mentioned by my hon. Friend the Member for Eastbourne, which is that the lowest-risk investments also offer the lowest return? There is a difficult decision to be made there; one cannot manufacture large returns on low-risk investments.

Kevin Brennan: I perfectly understand the point that the hon. Gentleman is making, namely that there is a relationship between the risk undertaken and the size of the levy likely to be brought to bear in order to make the pension protection fund work; but I made it fairly clear at the outset of my remarks that I think that the pension protection fund should err on the side of security in making that decision, because it would be pointless to have a pension protection fund that could not meet its liabilities. If the pension protection fund were to fail, we would all have failed in our responsibilities.
 I think that it is right to welcome the principle of the establishment of the pension protection fund. We should work thoroughly and carefully in our next sittings to scrutinise exactly how the fund would work—and, in all fairness, that is what the hon. Member for Eastbourne said, too. We should work together to make sure that the fund works, because if it does not, we will all have failed.

Sally Keeble: I very much welcome the part of the Bill that clause 81 introduces. It is potentially the most important part of the Bill, in terms of dealing with some of the real pressures that our constituents face. Certainly, in my constituency, where a number of shoe firms and other firms have collapsed, the issue of pension protection is crucial. Many of those firms were small. They were not the kind of large organisations that my hon. Friend was talking about. People faced huge pressure with little help and advice and I have some questions about that for my hon. Friend the Minister.
 The hon. Member for Eastbourne set out the actuaries' views and referred to different models for the scheme and different investment strategies, but, as my hon. Friend the Member for Cardiff, West (Kevin Brennan) said, he did not say whether the official Opposition are opposed to it, nor did he argue against it. He said, ''Here are different models. It will be difficult.'' That is not surprising. The official Opposition's attitude is critical because one of the problems facing us all when dealing with pensions issues is that many people do not know what their rights are and are unable to obtain some of the income or benefits to which they are entitled because they simply do not know about them. 
 Can the Minister explain how people will know about the scheme, how to join it and whether employees will be able to have a role in ensuring that their employer's scheme joins the pension protection fund? What information will people be given if their scheme is covered by the pension protection fund to enable them to tell, if the company folds, whether they will obtain the benefit? I am sure that that will be clear in large companies, but in some of the smaller ones people are not so well informed and information is critical. The same applies to the ombudsman scheme and it is right to have different ombudsman offices for different aspects of pensions. It is also right to have an ombudsman for the pension protection fund because, if people feel that something has not been done properly, they may want to take issue with what happened. It is important that people know how to do that. MPs also have a role and it is important for us to understand the position so that if a company in our constituency collapses we can provide people with help and advice. 
 When the details have been discussed, I hope that the Conservative party will make its position clear because, on a number of pension issues, such as pension credit—

Nigel Waterson: I agree with the hon. Lady about people being informed, but our concern about the specific issue is twofold. First, the fund should not be
 oversold to people because, as the actuaries reminded us, there is no full safety net by any stretch of the imagination, even if it works. Secondly, and not least because we expect to be back in government at some stage, perhaps as early as 14 months from now, we do not want to inherit an inherently unstable structure that will ultimately fail because it was not properly thought through and funded.

Sally Keeble: The hon. Gentleman's comments were helpful. It will, of course, be technically difficult to set up such a scheme. If it was easy, his own party, when it was in government, might have done that. The public may pick up only a fraction of what we say in Committee and what parties say, but when MPs' comments are picked up they are sometimes accepted as describing the way things are. The hon. Gentleman knows that his party has a strong following among pensioners, as we do. If his party is simply critical of this fund and does not make it clear to people not only that there are issues about setting it up but that there are advantages and that there are ways in which they can access it, that could affect the ability of his constituents to have access to the kinds of benefits that the fund provides. The pension credit makes it crystal clear what the effect can be of negative remarks by the Conservative party. It is extremely important that the party makes its views clear and that it draws a distinction between issues about technical implementation and the question whether it is a good or a bad scheme once it has been set up. No legacy of ours will be anything akin to the pensions mis-selling that was a legacy of the hon. Gentleman's party.
 There were also the state earnings-related pension scheme widows. I was one of the MPs involved in the test case about the lack of information provided on that. I ask the Minister to offer clarification on the issue of information and the hon. Member for Eastbourne to make his party's attitude clear at some point.

Nigel Waterson: Let me try to put the hon. Lady's mind at rest, because she has obviously been having sleepless nights worrying about the official Opposition's attitude. That is a tribute to the new standing of my party, following the election of the right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) as its leader. As we are breathing down the Government's neck, I will be clear about this.

Malcolm Wicks: That is why we are so scared.

Nigel Waterson: Be very afraid, as they say in the movies.
 To be blunt, I want to ensure that the PPF is not another Equitable Life waiting to happen. I want to ensure that it is properly endowed with assets, is properly run and will not let people down. As for the pension credit analogy, it is perfectly possible to assist pensioners who want help to get what they are entitled to, as I do in my surgeries and elsewhere, while at the same time criticising the basic madness of a system that increases exponentially the level of means-tested 
 benefits and puts off lots of those pensioners from applying in the first place.

Sally Keeble: I can assure the hon. Gentleman that I have no sleepless nights. However, it would help if he were to set out the Conservative party's views. There is a difference between the technical points that the actuaries raise, and which the hon. Gentleman read out in detail, and the Conservative party's political position, which the hon. Gentleman did not get around to explaining as he was reading out his brief. It is important that that is clearly expressed, and the Minister spells out how the Government are going to set about informing the public and how people will be able to ensure that their employer's schemes sign up to the fund. Once people are in a fund, if the company collapses they must know how to get access to their money.

Vera Baird: I welcome this provision very much. I echo the comments of my hon. Friend the Member for Cardiff, West on the many people who have spent their working life saving with every expectation that they would in the end have a reasonable retirement. As the story unfolded, it was reminiscent of Gradgrind in ''Hard Times''. As a person who is not historically close to pensions issues, I thought that we had left that situation behind many years—if not a century—ago. There cannot be any Committee member who does not have great sympathy with the approaching 60,000 employees who have suffered this fate either fully or partially.
 Happily, no one in my constituency has suffered that catastrophe. I am an Iron and Steel Trades Confederation member and there is a large steelworks in my constituency. Its pension provision is absolutely secure. However, the sympathy between ISTC members in Redcar and ISTC members in Allied Steel and Wire, who were among the earliest and most major sufferers of this kind of catastrophe, is so outstanding that I am required to take a very active interest—although I would have done so anyway. 
 I want to echo in my own terms what my hon. Friends the Members for Northampton, North (Ms Keeble) and for Cardiff, West have said. The whole of the Opposition's approach to the Bill appears to have been a sort of phantom scrutiny—one that involves reading out what the Association of British Insurers thinks of one particular clause, and what the National Association of Pension Funds thinks about other clauses, without the Opposition having any sort of view themselves. Is it that they, for some strange reason, are not able or prepared to put one forward? That is a wholly unsatisfactory way of carrying out their task, which is to scrutinise in great detail and to ensure that the Government, who I am pretty satisfied are getting it right, have indeed got it right. We have all had the handouts from the ABI and the NAPF. A bit of independent thinking about what they will do is required from the Opposition. I hope that they will change. 
Kevin Brennan rose—

Vera Baird: I give way.

James Cran: Order. I have not interrupted the hon. and learned Lady until now because she had a
 point to make about the Opposition. However, I would not want to hear much more about that because we are here to debate the Bill, rather than the Opposition.

Kevin Brennan: On the basis of the debate on clause 81, should not my hon. and learned Friend the Member for Redcar (Vera Baird) be a little bit kinder? At least the Conservatives have turned up.

Vera Baird: My hon. Friend has always been a generous man, even in adversity. In a burst of generosity, I will agree with him. I suppose that it is good to have them here—[Hon. Members: ''Him, him!'']—to have him here. There has been another one, I am sure.

Nigel Waterson: Is not the hon. and learned Lady a tad worried that at this stage of the game the Secretary of State should receive a letter from the four most senior actuaries in the country, expressing massive concerns about this part of the Bill?

Vera Baird: Are not the Opposition a tad worried that they do not have a thing to say about it? All they can do is read somebody else's letter out. I assume—I may be rash—that the Secretary of State has the letter and that he could have read it himself, without its being committed to the Hansard record. I am sure that in due course my hon. Friend the Minister will be able to deal with the issues that the letter raises; I doubt very much whether they will be dealt with during the debate on clause 81, as that is about the structure of the board.
 While considering the clause—closely, of course—the Opposition have spoken of going to Washington and finding nothing but incredulity that this route should be followed by the Government. Yet they themselves do not appear to have the slightest clue about how else the system should be put together. I have looked in vain through all the manifold documents that one gets on Standing Committees for some really fundamental amendments, fresh clauses or proposals from the Opposition that would give us better security, a different proportion of investments or whatever. 
 I am trying very hard to grasp what the Opposition think is a key problem. May I urge the Opposition to try to think a little bit about clause 81 and those that follow, and to make a serious contribution to what I see as an extraordinarily important debate about the future of pensions? It is not good enough for the Opposition to talk about the Government not having any consensus because the actuaries have written today, and yet not to be prepared to offer a single suggestion themselves. I hope that they have a good shake-up and a think during the weekend, because they have not tabled anything that will significantly alter anything. 
 When the Minister says a little more about clause 81, will he help on the question of scale? I find it very difficult to get an idea of the scale of the pension protection fund operation not in relation to its funding, but with regard to its likely number of employees and that sort of thing. I know that the 
 American equivalent has about 800 people. I imagine that that is not the scale that is envisaged under the Bill. However, we must bear in mind that the levy will have two parts—the flat-rate levy and the risk-based levy—and I hope that we shall have an opportunity to debate them extensively. It will have to finance the costs of the board under clause 81 and the costs of all the functions that it carries out, as well as ensure that the fund itself is adequately funded, so it is key for us to find out a little more about the likely scale of the costs.

Malcolm Wicks: I thank hon. Members for their contributions. In my introductory remarks on the clause, which sets up the board, I thought it appropriate to make some general observations. I am grateful to you for allowing me to do that, Mr. Cran. It has led to a fairly wide-ranging debate about the PPF, and I am not too tempted to deal with specific points that will come up in respect of later clauses. I shall deal with the other points in reverse order.
 I thank my hon. and learned Friend the Member for Redcar for her support for the pension protection fund. I seriously believe and predict that it will be seen as a major force for security in old age. It will be regarded by future parliamentarians, workers and others as a substantial social advance in our country. We are learning lessons from the experience of the American Pension Benefit Guaranty Corporation, taking on board many of its arrangements and policies and changing arrangements, when appropriate, for this country. 
 When I visited Washington, I met a Republican Senator, Democrat politicians, the trade union side, the employers' side and staff at the PBGC and elsewhere, but I met no one who suggested that the United States could now do without the Pension Benefit Guaranty Corporation, for which there was strong support. At one level, I could ask Conservative Members in this country to be as supportive of such things as I think the Republicans are in the United States.

Nigel Waterson: Did the Minister meet one person who believed that, if the corporation got into difficulties, the federal Government would not stand behind it?

Malcolm Wicks: There were different views on that matter. However, we will cross the Atlantic on more than one occasion in the next few weeks. [Interruption.] No, we are not a Select Committee; I was talking about visits not in a literal sense, but in terms of a philosophical policy analysis. [Interruption.] I shall not raise false hopes. We will consider such serious matters, but because we are enabling the board itself to vary the levy in the light of economic circumstances, the PPF will bring a flexibility to our fund that is not available to the fund in the United States, which has to go to Congress to gain approval to change the levy. That is one example of a significant difference between our countries.
 My hon. and learned Friend the Member for Redcar asked me to give her an idea of scale. We expect the number of staff to be somewhere between about 100 and 150. As for administrative costs, it 
 could cost in the region of £12 million to set up the fund and a not dissimilar amount—£9 million—for ongoing costs. As a broad estimate—I am talking about orders of magnitude—that is what we are contemplating. 
 My hon. Friend the Member for Northampton, North—I almost got her mixed up with my hon. Friend the Member for Cardiff, West; excuse my being a Londoner and London-centric about such things: I do know the difference between Cardiff and Northampton, North—made a number of important points, not least about the ombudsman. We will be discussing the ombudsman. It is right and appropriate that people can challenge the decisions of the board, and the ombudsman is important in that respect. 
 On publicity, we certainly expect the board to have a publicity strategy, like any other sensible organisation. Give that it is a new organisation, that is particularly important. I would expect a website, articles written by staff members, press notices, visits to insolvent employers and so on. 
 I should make it absolutely clear that joining the PPF is not a voluntary activity. Every defined benefit scheme, and some schemes that are of a hybrid nature, will be required to pay the flat rate and the risk-based levy where appropriate. When a final salary scheme gets into trouble, the PPF will move in compulsorily to protect members' rights. There will be a series of notices, when appropriate, to individuals, and it will be made absolutely clear what individuals subject to the PPF will receive and when. They will be kept fully informed. 
 My hon. Friend the Member for Cardiff, West made an important speech. The contribution that he has made to these debates on behalf of his constituents has been widely welcomed. I hope to persuade him in the future that the PPF will be set up on a solid financial foundation so that pension rights can be guaranteed. 
 The hon. Member for Eastbourne made a number of important points.

Nigel Waterson: Only at random.

Malcolm Wicks: They are important in the sense that they are important for us to consider and answer. To some extent, we will deal with them clause by clause, but I want to make a broad point in answer to one of his concerns. Like my hon. and learned Friend the Member for Redcar, I am still not absolutely certain what the Opposition's position is. I am sure that it will emerge as leaders of their party used to do—in due course, albeit in some mysterious way. The pension protection fund will bring security both for employees and good employers. Knowing that there is an insurance fund—I use the term as part of common English vocabulary—

Nigel Waterson: Not in the actuary's sense?

Malcolm Wicks: I use the word in its proper sense. English vocabulary is important. I am not using the term in a technical, legal or actuarial sense. I refuse to give away certain key parts of the English vocabulary
 to any one profession. Bringing insurance to people will mean that even the very best employers who probably stand no chance of going bankrupt in the next 100 years will nevertheless know that, should things go wrong, they can demonstrate to their employees that their contributions have been well spent and that their pension rights will be secure. That is important.
 The letter from the actuaries has been mentioned more than once. Let me deal with one or two of the points that were made. I always find it interesting to distinguish between people who come to us to discuss issues informally or confidentially and those who discuss them through a press notice, but of course people in a free society can make those choices for themselves. 
 The fund has been carefully designed to maximise protection to scheme members while ensuring that it is affordable for the industry, with the levy predominantly focused on risk. It is neither a pension fund nor an insurance fund. The board will be obliged to agree a statement of investment principles focused on addressing the risks that it will face. As such, it will not be constrained by the need to comply with solvency regulation. The PPF will have freedom, within the parameters set out in the Bill, to alter the levy to ensure that protection is maximised—a point that I made in terms of the contrast with the experience in the United States, from which we have learned. It will also be able to borrow money. In extremis, the PPF board may make recommendations to the Secretary of State to vary the level of compensation that is paid. It is important that that ability is included in the Bill, but I emphasise the words ''in extremis''. I can foresee no realistic circumstances in which it would be necessary. 
 It is important to point out that the fund will have recourse to a number of measures that must be implemented before the reduction of compensation is an option. I am sure that the hon. Member for Eastbourne will read that in Hansard tomorrow. He is clearly not listening, even though he asked the question. For example, the PPF will be able to raise the levy, reduce indexation or borrow commercially. In fact, the compensation percentages can be varied only when revaluation and indexation have been reduced to nil.

Nigel Waterson: I can assure the Minister that I am following his every word. To prove it, can I ask him something? He talks about borrowing commercially, but does he accept that if there is no Government guarantee, the PPF will have to pay much more for its borrowing than it might otherwise have done?

Malcolm Wicks: I accept that the board will have an income stream from the levy that is largely risk based. In the unfortunate circumstance that a scheme goes bankrupt with the company, which will occur, it will take over the assets. There will often be considerable assets—often millions of pounds' worth—which may only add up to a percentage of pension rights, but it might invest those and therefore gain an income stream. From time to time, because of an economic cycle, it may need to borrow. However, it is important
 to bear in mind that the board will have assets and income. We will return to that issue in due course.
 The Secretary of State will not be acting with a free rein to reduce compensation; he or she will be approving the board's carefully considered proposal—should it come to that—which it can make only after consulting stakeholders. Any change to the level of compensation will be subject to an affirmative resolution procedure. Our approach strikes a balance between building in constraints to reassure levy payers that costs will not rise beyond control and allowing the fund the flexibility to raise the funding that it needs to reassure members that they are sufficiently protected. 
 I will not go into a detailed analysis comparing and contrasting those arrangements with the American PBGC. We will be able to deal with those issues when we come to different clauses, but I should like to emphasise that we have learned a great deal about the advantages and disadvantages of the United States model. I mentioned that we feel that requiring the board to come to Parliament, just as the PBGC is required to go to Congress in the United States to change the levy, would be inflexible and would not be sensible. 
 The hon. Member for Eastbourne is correct in his implication that the PPF alone is not the way to social security in old age. We regard it as part of a package, much of which is covered in the Bill, including scheme-specific funding and the importance of the regulator working in partnership. 
 I hope that I have covered some of the points, although I have deliberately not gone into the detail, because it might be tedious to the Committee to repeat such remarks during a clause stand part debate, and they would probably be ruled out of order by our rigorous Chairman.

Gregory Barker: Given that the scheme will not be mandatory for all—

Sally Keeble: It will be.

Gregory Barker: In that case my question does not arise.

Malcolm Wicks: It will be mandatory for all final salary or defined benefit schemes and those of a hybrid nature that have a DB and DC element. It is not voluntary. People may not choose to join or not to join.
 I have not dealt with the comment from the hon. Member for Eastbourne that his party will be back in 14 months, but there are limits to the powers of the pension protection fund. 
 Question put and agreed to. 
 Clause 81 ordered to stand part of the Bill.

Clause 82 - Membership of the board

Nigel Waterson: I beg to move amendment No. 347, in
clause 82, page 52, line 18, at end insert— 
 '(4A) Any person appointed as an ordinary member shall have knowledge and understanding of— 
 (a) the law relating to pensions and trusts, 
 (b) the principles relating to— 
 (i) the funding of occupational pension schemes, and 
 (ii) investment of the assets of such schemes, and 
 (c) such other matters as may be prescribed'.
 I confess that this amendment, which has a lot going for it, was inspired by the National Association of Pension Funds. The association's first concern, which seems sensible, is that the kind of people that will be appointed to the board should—to put it bluntly—know what they are doing. They should have the appropriate skills and expertise to discharge their duty. A different part of the Bill, which we have mercifully moved on from, places heavy and onerous duties on trustees, who are required to be conversant in various things, but there is no equivalent test for PPF board members. That strikes me as bizarre because in many ways those board members will be the ultimate trustees of all pension funds in the country. 
 Amendment No. 347 would ensure that anybody who is appointed has knowledge and understanding of the relevant issues including: pensions and trusts, and the law relating to them; and the principles relating to the funding of schemes, investment of the assets of such schemes and other matters that may be prescribed. We have just heard from the Minister that the board will have to make tricky decisions about investment of assets brought in from failed schemes, about revenue streams from the levy or levies, and about borrowing. Board members will therefore have to be high-powered, and we certainly do not want a board that is unable to cope with its requirements. 
 Amendment No. 347 strikes me as eminently sensible. If we are capable of stating the requirements on trustees' knowledge in the Bill, why not state the requirements on ordinary members of the board?

John Robertson: I should be obliged if the Minister considered the phrase ''five other persons'' in clause 82(1)(c). Will that ensure a broad coverage of people? Perhaps we could include employers, employees and people with experience of the insurance business. Would the Minister consider having somebody with occupational pension and management experience? To say ''five other persons'' leaves things open to having five anybodies. We could end up with five people of the same ilk, which would not ensure diversity. I would like employees in particular to be represented, as well as employers. As an ex-manager, I know that experience of managing schemes and business is helpful. How does the Minister expect to achieve a broad coverage if all that is stated is
''five other persons ('ordinary members')''?

Malcolm Wicks: Amendment No. 347 relates to the board of the PPF, and it suggests that we include in the Bill a requirement for ordinary board members to have when they are appointed knowledge of the law relating to pensions and trusts, and of the principles relating to funding and investment of schemes and other
 prescribed matters. We recognise that the amendment is an attempt to mirror the requirement that applies to trustees under clauses 200 and 202, which we discussed earlier. After all, the argument would go, if individual trustees are required to have such knowledge, why should PPF board members be exempt? That is the argument in a nutshell; in principle, it is not a bad one.
 It may help if I explain the principle behind clauses 200 and 201. Clause 200 is designed to give trustees clear guidance about the knowledge that they require to carry out their role effectively. The ''lay'' trustees are at the very heart of the UK's private pension provision, particularly as many are unpaid. We value their commitment and sense of duty. There is a similar requirement for corporate trustees. As I said earlier, the clauses do not mean that we expect all trustees to be expert in every aspect of pension law and administration. Rather, we expect them to be able to demonstrate a good, solid understanding of the scheme rules and a broad knowledge of the issues. 
 We do not believe that the requirement set out in the amendment should be added to the Bill for PPF board members. It is unnecessary for several reasons. First, board members will not be acting in an unpaid capacity. They will be suitably experienced in order to ensure that the board as a whole is best capable of exercising its functions efficiently and effectively. Secondly, the appointment process will require that each board member has the knowledge and experience that is appropriate for his role. We would not appoint people who seem to be ignorant or who are not knowledgeable about the job for which they are applying. For example, we would expect a finance director of the PPF to have suitable financial qualifications and experience to ensure proper conduct of its financial affairs, but they need not necessarily have detailed knowledge of the law relating to pensions and trusts. 
 Thirdly, we envisage that the terms and conditions will set out that board members must continue to have the knowledge to carry out their role, and that they will undertake training if necessary. Non-executive members will also be appointed on merit and the chairman will be expected to implement the recommendations of the Higgs report for non-executives. [Hon. Members: ''Hear, hear.''] I know that my hon. Friend the Member for Greenock and Inverclyde (David Cairns) followed the Higgs report proceedings with some interest. 
 The recommendations specify that the role of each non-executive should be clear from the beginning of their appointment, that a comprehensive induction programme should be provided for them and that the chairman should address the development needs of the board as a whole with a view to enhancing its effectiveness. Furthermore, the performance of the board, its committees and its individual members should be evaluated at least once a year. The annual report should state whether such performance reviews are taking place and how they are conducted. I believe that the objective of the amendment is achieved by 
 those approaches, and so I hope that the hon. Member for Eastbourne will withdraw the amendment. 
 My hon. Friend the Member for Glasgow, Anniesland (John Robertson) raised a point that may come up again later about the people who are required for the board. It is not intended that the board will be strictly representative of certain groups. We have learned lessons from other public organisations that found that such an approach tied their hands when they were trying to appoint the right person for the job. Instead, as I said, each appointment will be based on merit to ensure that members of the board have the right skills and experience for their role and that the board as a whole provides the best range of experience and knowledge. Given the importance of that broad range of experience, skills and knowledge, we would not, by definition, expect the board to consist of exactly the same kinds of characters. That would not be in keeping with what we are trying to achieve. However, I reiterate that that does not mean that representative interests will be ignored or that individuals and groups will not be reasonably informed about board decisions. I ask the hon. Member for Eastbourne to withdraw the amendment.

Nigel Waterson: I am grateful to the Minister. I was not suggesting that in the real world there would not be an attempt to get the best possible people. To take just one category as an example, I hope that we will not see any of the Prime Minister's former flatmates popping up as members of the board.
 I am slightly worried by what the Minister said about training. For reasons that I have already explained and will go on to explain in more detail when appropriate, board members will have to hit the ground running. I think that the fund is going to be extremely vulnerable in its early years until the full risk-based levy kicks in. Even then, it will be difficult to run it well, and the people concerned will need all the relevant skills. The CBI made the important point in briefings to us that people with a relevant business background will be needed to run the fund. 
 I am happy to withdraw the amendment, but I am still not wholly convinced that there is some great point of principle that requires the Bill to insist that trustees, but not the ordinary members of the board, have certain skills. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 348, in
clause 82, page 52, line 30, at end insert— 
 '(8) The appointment of any member of the Board shall be open and transparent.'.
 To coin a phrase, the Minister has already shot my fox on this amendment because he has already mentioned the magic word ''Higgs-compliant''. The amendment is inspired by the NAPF, which was keen that the appointment of all the members should be as transparent and open as possible. I cannot imagine any argument against that. The words ''open'' and ''transparent'' are code for Higgs-compliant, which is 
 the current best practice in such matters. I hope that the amendment will have some appeal to the Minister.

Malcolm Wicks: To some extent, as the hon. Gentleman anticipated, I dealt with these matters in my earlier remarks. I am fully in favour of the spirit of the amendment, but we believe that it is wholly unnecessary. The Bill already provides that procedure for any appointment made by the board must follow prescribed procedures and guidance. I hope that I have given the hon. Gentleman some reassurance in the remarks that I made some moments ago about our intentions. We need people with a range of experience and skills to carry out this important and complex task. I therefore hope that the hon. Gentleman will consider withdrawing his amendment, however well intentioned it may be.

Nigel Waterson: All my amendments are well intentioned, Mr. Cran, as you well know. None the less, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 82 ordered to stand part of the Bill. 
 Clause 83 ordered to stand part of the Bill.

Schedule 5 - The Board of the Pension Protection Fund

Amendments made: No. 399, in 
schedule 5, page 187, line 2, leave out 'discharged' and insert 'exercised'.
 No. 400, in 
schedule 5, page 188, line 21, leave out 'such of the Board's' and insert 
 ', on behalf of the Board, such of its'.
 No. 401, in 
schedule 5, page 188, line 25, at end insert— 
 '17A (1) The Board may make arrangements for any of its functions mentioned in subsection (2) to be exercised, in accordance with those arrangements, by a person on behalf of the Board. 
 (2) The functions are those conferred by or by virtue of— 
 (a) the pension compensation provisions (see section 124); 
 (b) section 125 (adjustments to be made where Board assumes responsibility for a scheme); 
 (c) section 127 (duty to notify Inland Revenue in relation to guaranteed minimum pensions); 
 (d) section 128 (duty to pay scheme benefits unpaid at assessment date); 
 (e) sections 131 and 132 (discharge of liabilities in respect of compensation or money purchase benefits); 
 (f) section 153 (notices requiring provision of information); 
 (g) section 165(1)(a) (provision of information to members of schemes etc); 
 (h) section 85 (supplementary powers), so far as that section relates to any function conferred by or by virtue of any provision mentioned in paragraphs (a) to (g). 
 (3) Where arrangements are made under this paragraph for any functions of the Board to be exercised by another person on its behalf— 
 (a) section 157(1)(b) (offence of providing false or misleading information to the Board) and section 158 (use of information) apply in relation to that person and any functions of the Board exercised by him as they apply in relation to the Board and its functions; 
 (b) subject to paragraph (c), sections 159 to 164 and 165(2) to (6) (disclosure of information) apply in relation to that person and any information obtained by him in the exercise of the Board's function as they apply in relation to the Board and information obtained by it in the exercise of its functions; 
 (c) nothing in paragraph (b) authorises any person to determine on behalf of the Board under section 163(1) whether the disclosure of any restricted information is desirable or expedient in the interests of members of occupational pension schemes or in the public interest. 
 (4) Where the Board makes arrangements under sub-paragraph (1) for any of its functions to be exercised by a person on its behalf, those arrangements may also provide for that person to exercise on behalf of the Board— 
 (a) any function, by virtue of section 168(1)(a), to give a review decision in respect of any reviewable matter arising from the exercise of that function; 
 (b) in relation to any function exercisable by virtue of paragraph (a) above, any other function under regulations under section 168(1) in connection with the giving of a review decision; 
 (c) any function conferred by section 85 (supplementary powers), so far as that section relates to any function mentioned in paragraph (a) or (b). 
 (5) In sub-paragraph (4) ''review decision'' has the meaning given by section 168(1).'.
 No. 402, in 
schedule 5, page 191, line 22, at end insert 
 'or any provision in force in Northern Ireland corresponding to either of those provisions'.—[Malcolm Wicks.]
 Schedule 5, as amended, agreed to.

Clause 84 - Board's functions

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I tabled an amendment or two to the clause, but I am sure that for all the right reasons they have not made it through to the final round. I wanted to make a point about our preferred method of dealing with the 60,000 people—the ghosts at the feast, as I previously described them on the Floor of the House—referred to by the hon. and learned Member for Redcar, the hon. Member for Cardiff, West and others.
 The Government have made it quite clear that the Bill should not be retrospective. In principle, I can see the logic. We have already expressed our concerns about the vulnerability of the fund in its earliest years, and it is difficult to justify a retrospective role for the protection fund as it stands in the legislation. Equally, all members of the Committee feel most strongly that those 60,000 people cannot simply be ignored. 
 The Minister neglected an earlier opportunity that I gave him to reveal more to us—and I am not privy to any ongoing discussions—about how those 60,000 can be compensated. The hon. and learned Member for Redcar gave Her Majesty's official Opposition a fair old tongue lashing, but on the issue under discussion, which she regards as important, we were the first to table amendments to the Bill, and I do not think that they have attracted her signature or those of her hon. Friends. 
 We at least proposed a possible solution, which was in part based on the Private Member's Bill of the right hon. Member for Birkenhead (Mr. Field), to use so-called unclaimed assets to compensate the 60,000. At last, despite the unwillingness of the Secretary of State to allow an independent inquiry into the numbers involved, it now seems that 60,000 is the right figure; I think that the Secretary of State said so on the Floor of the House the other day. 
 The most practical way to deal with the issue is to have a separate fund, known as the interim pension protection fund, running parallel to the pension protection fund and administered largely by the same people—there is no point in reinventing the wheel and there must be economies of scale in having a separate fund run under the same umbrella as the 100 to 150 people that we have heard will be working for the PPF—with the sole task of administering those assets. They would be used to deal with the people who have already lost or who will have lost—I am sure that the process will not have stopped by April next year—pension rights before the Bill is enacted and the fund is set up. 
 The interim fund would take its place alongside the pension protection fund and the fraud compensation fund. There would be three parallel funds, all administered by the same people but kept quite separate because of the point I have already made about retrospection. 
 That approach would be fair and sensible. We are not impressed by the Treasury's argument that just because funds are unclaimed does not mean that they do not have any owners. Everyone has a shrewd suspicion that the Treasury has other plans for those funds—possibly to prop up falling receipts from the lottery for charitable purposes. I have no doubt that the Treasury wants to get its own sticky fingers on those assets. 
 Given that some estimates state that there are £15 billion of unclaimed assets across the country, there is plenty of scope for meeting those claims. Subject to whatever work is going on behind closed doors in Government—perhaps the Minister will fill us in on that—it seems that the only ones doing any serious work are the unions, and people such as Dr. Ros Altmann, to whom we should all pay tribute for raising the profile of the issue and doing some hard number crunching. 
 We take the view that, in an ideal world, the board should have that function. So far, that idea has not found favour with the Government, as is their prerogative. I am slightly more surprised that it has not found favour as a way of tackling the problem with some Government Members who take a close interest in the subject. It is a little rash to back just one horse—namely, the hope that the Government will decide to use taxpayers' money to compensate those 60,000 people—because that horse may not even make it to the finishing line. 
 I commend our thoughts on the clause. Bluntly, we think that the board should have wider functions. I 
 hope that I have set out clearly how we believe that that would work.

Kevin Brennan: If we are to back a horse, perhaps we should back Best Mate. Usually in such matter, that is one's own side.
 The hon. Gentleman is wrong to say that the idea of an interim protection fund did not occur to some Government Members. As he probably realises, I had the same thought: that one might try to amend the Bill in Committee to create a third fund, to be known as the interim protection fund or whatever. The Ways and Means resolution on the Bill is drawn up in such a way that it is impossible at this point to draw up an amendment that amends the Bill in that way—or, at least, we could not do so. However, I accept that the idea might be a way to provide more clarity on the issue of assistance, compensation or whatever one calls it for those affected by the occupational pension insolvency problem of recent years. 
 Of course, how that fund would have been funded, had it been possible to introduce it in the clause, is a matter for debate. There is a problem with the orphan assets proposal of my right hon. Friend the Member for Birkenhead. That proposal is worth looking at; the Conservatives find it attractive because it means that they do not have to make any spending commitments in their consideration of the issue, so it seems like an easy way out. The problem with the proposal is that building societies and banks have objections to it.

Nigel Waterson: I have been following carefully what the hon. Gentleman says, because I know that he has built up a genuine expertise on the matter. It is not that we do not want to make spending commitments; we are just trying to find out the size of the spending commitment, if the measure is one of the options. The Government have set their face against an independent inquiry, so the only figures available are those of Dr. Altmann. With the best will in the world, she does not have the resources of the Government. I just wanted to clarify that point.

Kevin Brennan: My view is that it is right to decide whether it is correct to assist in principle, and then to look at the scale on which one can assist, and the funding that should be put into that. Over a very long period—that is what we are talking about—occupational pensions will be undermined if no form of assistance is available. The pension protection fund might not perform the role that it is intended to perform if lots of people are wandering around the country saying, ''You can't believe in pension protection; we thought we had such protection, and a guaranteed pension and security. Look at what they said to us, and look what it meant.'' It is therefore in the public interest to say that we will assist, and to look at the scale on which that assistance could be offered and the cost of that.
 The hon. Gentleman is quite right that Dr. Ros Altmann has made estimates, and she has ensured that they are overly generous, in order to give some idea of the maximum scale of contribution that the Government would have to make. That maximum scale, whatever it is, pales into insignificance, and seems a tiny sum, when held against the massive sums 
 involved in subsidising private pensions in the UK. That costs £14 billion a year, half of which, as we now know, goes to the top 10 per cent. of earners, and 25 per cent. to the top 2.5 per cent. of earners. Huge sums are involved and we must restore confidence in occupational pensions. The provision would have a broader impact on restoring confidence in pensions and it is worth the Government's investing in that. Nevertheless, if it was decided that it was appropriate for unclaimed assets to be used to fund assistance or compensation, I would not object, not least if unclaimed assets in national savings, for example, were used. That is money that people have lent to the state rather than to the private sector, and huge sums may be involved. I have not asked how much money there is, but I am sure that there is a significant amount of unclaimed money that could be used for this purpose. 
 It might have been better if the Ways and Means resolution had made it possible for an additional function to be added to the board to create a separate fund to avoid confusion when administering any compensation. If that is to be done—I hope that it will be—we must wait and see exactly how. 
 We shall return to the subject when we come to later amendments because we have had to find other ways of trying to get around the Ways and Means resolution.

Chris Pond: Hon. Gentlemen have used a broad-brush approach to clause 84, if not a paint roller, but I understand why and we have had this debate on many occasions. It is important for the Committee to recognise that, as we have always said, the pension protection fund will apply to the future and cannot be made retrospective. To pay pension protection fund compensation to companies that have already gone bust, leaving members with less than their expected pensions, would mean compensating those who had not paid the PPF levy and an unfairly bigger bill for those who had.

Kevin Brennan: No one is suggesting that the levy should be used to compensate people.

Chris Pond: I thank my hon. Friend for that comment.
 We have had this discussion, understandably, in the context of a specific clause on the pension protection fund and I want to make it absolutely clear for those who read Hansard that we cannot discuss retrospection. However, as my hon. Friend and other hon. Members know, the Government are sympathetic to those whom my hon. Friend has represented so effectively and who worked so hard to build up their pensions for their future retirement but now, as he so eloquently said, have lost both their jobs and their security in retirement. 
 As my hon. Friend the Minister and my right hon. Friend the Secretary of State said earlier, they have both met people who are affected and their representatives and have considered all the options, but have had to be very straight and tell them that they do not know whether a solution can be found to their current plight. In the Bill we are trying to do everything possible to ensure that it never happens 
 again, but we must be clear that expectations should not be raised because we may not be able to deliver all that. 
 As I said, that is a broad-brush approach to a clause that relates specifically to the functions of the pension protection fund, which are set out in part 2, and to the fundamental functions of the board—namely, that it must manage the pension fund and the fraud compensation fund, and that it may levy contributions to those funds under clauses 137 and 151. The clause also states that the board has the functions that are set out in other enactments, as well as all the functions set out in the Bill. 
 Functions in other enactments may include those that have been transferred to the PPF from the Pensions Compensation Board. Those functions were originally set out in the halcyon days of the Pensions Act 1995. It is worth mentioning that the clause sets out the functions of the board in a similar way to the way in which clause 4 sets out the functions of the regulator, which we discussed earlier. If we were still talking about the regulator, we would refer not to the ghost at the feast, as certain Members have suggested, but to the phantom at the opera. 
 The clause should be read with clause 85, which we shall discuss in a moment. Clause 85 states: 
''The Board may do anything which . . . is calculated to facilitate its functions, or . . . is incidental''
 to them. We shall debate those functions in our debate on clause 85. 
 Question put and agreed to. 
 Clause 84 ordered to stand part of the Bill.

Clause 85 - Supplementary powers

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: The Minister should be a little worried, because the Under-Secretary has a better gag writer than he does. Who knows where that might lead?

Malcolm Wicks: At least we have one.

Nigel Waterson: We do not need one. Gags come naturally. ''It's the way I tell 'em.''
 This is another sinister clause, drafted by the Darth Vader of the Department. It is far too wide. It states: 
''The Board may do anything which—
(a) is calculated to facilitate the exercise of its functions, or
(b) is incidental or conducive to their exercise.''
 It would have been bad enough if the Government had satisfied themselves with paragraph (a), but paragraph (b) goes way beyond anything that we could legitimately pass in what passes for a democracy. If we had not got ahead of ourselves, an amendment would have materialised in time for Thursday's sitting. It would have suggested that we simply insert the words, ''on administrative matters only.'' Surely the supplementary powers that the board seeks to have would relate only to the administration of its 
 functions. Anything wider than that strikes me as sinister, so it would be extremely helpful if the Minister could explain why the Government believe that these extraordinarily wide supplementary powers are needed.

Chris Pond: I can reassure the hon. Gentleman about his Darth Vader concerns. The clause does not mean that the organisation may do anything at all. It merely means that the action must relate to the exercise of the board's functions. It may not do anything that the legislation expressly prevents it from doing. It therefore clearly relates to the functions of the board and its administrative responsibilities. It will certainly not allow the board to take over the universe in a way that might concern the hon. Gentleman.
 Question put and agreed to. 
 Clause 85 ordered to stand part of the Bill.

Clause 86 - The Non-Executive Committee

Amendment made: No. 364, in 
clause 86, page 53, line 32, leave out 'discharged' and insert 'exercised'.—[Malcolm Wicks.]
 Clause 86, as amended, ordered to stand part of the Bill.

Clause 87 - Investment of funds

Malcolm Wicks: I beg to move amendment No. 365, in
clause 87, page 54, line 25, after 'be', insert 'at least'.

Malcolm Wicks: The clause allows the board to invest assets in order to manage its affairs prudently. The Pensions Compensation Board has a similar power to invest funds that are surplus to its immediate requirements under section 85 of the Pensions Act 1995.
 The pension protection fund board is required to appoint fund managers in relation to investing assets to manage its affairs prudently. The current wording of clause 87(2) requires the board to appoint two, and only two, fund managers to manage investments. This minor Government amendment will require the board to allow at least two fund managers to carry out the functions. The value of the pension protection fund's assets is likely to be significant in time. It is only reasonable, therefore, that the board should have the flexibility to appoint the number of fund managers that it thinks is required to maximise its investment returns and implement its investment strategy. 
 The amendment will enable the board to ensure that its fund managers have the breadth of knowledge, experience and expertise to manage the fund's assets to the best possible standard. We consider it appropriate for the board to have at least two fund managers, for reasons of propriety. 
 Amendment agreed to. 
 Question proposed, That the clause, as amended, stand part of the Bill.

Vera Baird: I am conscious that the board of the pension protection fund will take over the functions of the current Pensions Compensation Board. I assume that a separate levy to that will continue. Is it intended under the Bill that that fund will be managed separately from the main fund of the pension protection fund? I imagine that that must be so. Is there a separate provision? I am slightly puzzled that the matter is referred to as if there is only one set of investments, when it is likely that there will be two.

Malcolm Wicks: The answer is yes—or two yeses. The new fund will take over the compensation regime from the previous, or existing, board, and there will be a separate fund to be managed. Mercifully, because of relative lack of fraud, the fund has not needed to be gigantic. The levy has been incurred only from time to time.
 Question put and agreed to. 
 Clause 87, as amended, ordered to stand part of the Bill.

Clause 88 - Investment principles

Nigel Waterson: I beg to move amendment No. 349, in
clause 88, page 55, line 9, at end insert— 
 '(5) The statement of investment principles prepared under this section shall be made available by all appropriate means to members of the public.'.
 This is another amendment inspired by the National Association of Pension Funds and it is a sensible one. A statement of investment principles must be prepared, as we have seen, under the clause. That is quite right too. However, I can see no reason why that should not be available to members of the public. The body in question is, after all, a public body designed to protect members of the public who are members of final salary occupational pension schemes. The NAPF takes the view—and I agree—that the information should be in the public domain. 
 I cannot see any argument, for example, that the investment of the pension protection fund would be so enormous that knowledge of the investment strategy would affect other economic considerations. I can see no immediate reason for any secrecy or confidentiality. I think, although I cannot find the relevant clause off the top of my head, that I am right in saying that the board will publish its accounts annually, and that those will be open and available to members of the public, who take a close interest in such matters. So it seems perfectly sensible that the investment principles underlying the way in which those concerned deal with the funds or assets with which they are endowed, or the money received through levies, should be set out in a way that is accessible to the public.

Malcolm Wicks: I agree with the hon. Gentleman, but I do not think that his amendment is necessary to achieve the objective. I certainly support the aim that he outlined. We stress that although the body being set up will operate at arm's length from Government, it must abide by reasonable reporting requirements, which will include the duty to prepare annual reports and accounts. The account must also contain an
 actuarial valuation of the fund's assets and liabilities. The requirement to produce a written statement of the principles governing decisions about investments is similar to that which applies to trustees of pension schemes, which is set out in clause 199. It is intended that the statement of investment principles must be made available to members of the public on request as part of the disclosure requirements. The details of the disclosure requirements will be set out in regulations under clause 165(1), which we shall discuss in the coming weeks.
 In view of that reassurance, I hope that the hon. Gentleman will consider withdrawing the amendment.

Nigel Waterson: I am grateful for the Minister's explanation; I am thoroughly reassured. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 88 ordered to stand part of the Bill.

Clause 89 - Borrowing

Question proposed, That the clause stand part of the Bill. 
Malcolm Wicks rose—
Mr. Waterson rose—

James Cran: Make up your minds.

Malcolm Wicks: We are both such gentlemen; we were deferring to one another, although that may not continue.
 The clause allows the board to borrow sums that it may require from time to time to carry out its functions and to give security for any amounts that it borrows. The power to borrow is designed to address short-term liquidity problems and is normal for many executive, non-departmental public bodies. For example, the provision exists for the Pensions Compensation Board. The board may borrow from certain deposit takers or banks, and this term is defined as organisations authorised to accept deposits, and complies with the Financial Services and Markets Act 2000. However, the power will be restricted, in that the board may not borrow if its total borrowing would exceed its borrowing limit, which will be set by the Secretary of State in regulations. The board will, of course, also have to meet legal requirements for the prudent management of its finances and investments.

Nigel Waterson: I am grateful for the Minister's explanation, but I have some additional questions. First, he said that borrowing should be restricted to deal with short-term liquidity problems, but our concern is about longer-term liquidity problems. Does the Minister think there is a case for taking a slightly more relaxed attitude to that sort of borrowing? Clause 89(1)(b) states that the board may
''give security for any money borrowed by it.''
 What kind of security does the Minister have in mind? Does he mean the uncharged assets of schemes taken over by the board, or other things? 
 I want to probe the Minister about the basis for the borrowing limit. The heart of the clause is missing, 
 because the Secretary of State will have the power to decide the borrowing limit. What is the thinking behind the proposal? What criteria will be applied to produce a borrowing limit, and will it be related to the income from the levies, or the income on the assets being administered at a given time? Will the approach be based purely on liquidity or on other relevant issues? 
 The big question, which hovers around the edges of many of the clauses, is about the Government's position. From my brief but highly informative trip to Washington it seemed that there was a consensus on both sides of the political argument that the American Government could not allow the Pension Benefit Guaranty Corporation to go under. Our Government are being unrealistic in suggesting that they will set up the board and the fund, which will run themselves and not require input from the Government if things go horribly wrong. 
 In the context of clause 89, that translates into the cost of borrowing because, as I said earlier, if the Government bit the bullet and said that they would stand behind the fund, that would not only satisfy the concerns of people such as the hon. Member for Cardiff, West, but reassure people who need assurance. It is pointless to have this elaborate structure if it does not reassure people, but the cost of borrowing would be that much lower simply because the board would not have to go to the commercial market and there would be some benefit in having support from the Government. 
 I am sure that the last thing the Treasury wants is to be seen to be backing the fund and I understand the narrow approach that would produce that result. However, the Treasury wants to interfere in all sorts of other aspects of the Bill, as we have seen, so will the Minister give a little more detail about the basis of borrowing, the borrowing limit, security, the Government's role and the cost of borrowing?

Malcolm Wicks: It is important to emphasise that borrowing is a short-term measure for specific short-term problems that may or may not occur. In the long term, the board may increase the levy and not need to borrow. The difference between what will become the British practice and the United States experience is that the board will have flexibility to make its own judgment on the level and that is crucial. Over time, the fund will accumulate its own assets as it takes over assets, which may be considerable, of failing pension schemes. There will be an income stream from those assets, so we do not foresee borrowing being at the heart of the board's funding—far from it. It is reasonable for the Secretary of State to set a borrowing limit. That is normal for non-departmental public bodies and replicates the provision for the Pension Compensation Board. It is important to remember that the power to borrow is aimed at addressing short-term issues.
 On security, I mentioned that the scheme will have considerable assets and there could be security in property owned by the PPF, but borrowing will be only in short-term circumstances. 
 Question put and agreed to. 
 Clause 89 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Margaret Moran.] 
 Adjourned accordingly at three minutes past Five o'clock till Thursday 25 March at half-past Nine o'clock.